Beneficiary: Definition, Example and Related Terms
What is a Beneficiary ?
In commercial contracts, a beneficiary is often a third party who, while not directly involved in creating the contract, stands to gain something from it. They have what's called a 'beneficial interest' in the contract or arrangement, meaning they have a right to benefit from it even though they may not be a direct party to it.
Understanding who the beneficiary is and their rights is crucial in contract management. The beneficiary's rights must be clearly defined, and any conditions attached to their benefits should be explicitly stated. This helps prevent disputes and ensures the intended benefits reach the right person or entity.
It's important to note that beneficiaries can be either primary or contingent. Primary beneficiaries are first in line to receive benefits, while contingent beneficiaries only receive benefits if certain conditions are met or if the primary beneficiary is unable to receive the benefit.
Example(s)
Scenario Description Life Insurance Policy A person takes out a life insurance policy and names their spouse as the primary beneficiary and their children as contingent beneficiaries. The spouse would receive the insurance payout upon the policyholder's death, but if the spouse is deceased, the children would receive it instead. Commercial Contract A company sets up a contract with a supplier that includes benefits for its employees (the beneficiaries). While the employees aren't party to the contract itself, they benefit from it through receiving goods or services at preferential rates.